“What our most successful CEOs do better than anyone else has nothing to do with technical skill or past experience.”
It’s been 100 days since the global COVID-19 breakout
If you’re a start-up CEO, you’re used to pressure and uncertainty and may think the current COVID-19 outbreak is just another storm to weather. Realistically, even once markets rebound and travel opens up again, this global health crisis has touched 180 countries and will continue to impact society and the economy for the next thirty years. Now that you’ve had time to think, how your company responds to COVID-19 over the next few months will determine not only whether you make it to next year, but also whether you are set up for success in an ever-changing future.
At B Capital Group, my role is to partner with our portfolio company leadership teams to refine their strategic and operational plans. I’ve found that what our most successful CEOs do better than anyone else has nothing to do with technical skill or past experience. It’s their ability to filter out noise, to focus on what matters. Right now the best CEOs are thinking about three things: liquidity, leadership, and executing their vision.
Liquidity: Maximize your cash runway
This sounds obvious but raising capital during a crisis is hard. We had a look at some of the top-performing VCs that emerged from the 2008–09 crisis and found that less than a quarter of capital invested during that period was given to Series B-G companies. There was also a ~35% drop in median deal size. It is likely you’ve already made strategic cuts to trim expenses without fundamentally hurting the business, but if you still have less than 18 months of runway left you really need to dig into the details of your burn. In downturns, revenues and cash levels always fall faster than expenses. Here are some key areas to look at:
● Customer churn. Part of the reason the early-2000s dot-com crash was so bad is that start-up revenues were dependent on other start-ups. Once a few went out of business and service providers lost most of their revenue, they all started falling like a house of cards. In a downturn your churn rate will increase and you’ll need to write off bad debt. Estimating this early enough is crucial to building a healthy and reliable new financial model for 2020. Look at your payment schedules, review each of your customers, and determine 1) who can pay you in the current climate and 2) when the money will actually hit your account.
“Businesses that survive recessions sharpen, rather than simply cut.”
● Contribution margin. For many businesses, revenue will take a hit in the next three to six months and the first cost bucket to get cut in the process is usually marketing. Businesses that survive recessions sharpen, rather than simply cut. For example, how effectively do you acquire users and retarget those that know about you but haven’t made a purchase? It’s common to hear, “I’ve reduced my marketing spend by 30% and its hasn’t really materially impacted the number of downloads/overall sales.”
● People. This is a hard topic for any CEO. If cuts need to be made, be honest, compassionate, and swift. Drawing out layoffs is unnecessary and can be more damaging than conducting them all at once. If you have done your financial planning well you should be able to assure the remaining team of job stability for a certain period of time once cuts are announced and implemented. This will remove a huge weight from their shoulders. They will appreciate your candor and compassion and work a lot harder because of it, too.
● Monthly planning. Conditions are volatile, so be agile, as quarterly planning cycles aren’t meaningful in this environment, especially to high-profile start-ups. Investors today will care more about your path to profitability than user acquisition rates. Keep them updated on your progress often to give yourself room to operate.
Leadership: Act with your team, not for them
You often see the best leaders emerge during a crisis. Those who impress us communicate their plans clearly and have the complete trust of their organisation. So, how do you be the leader your team needs?
● Stay healthy and strong, and extend your team the same courtesy. Remember that this situation is a marathon, one that is incredibly taxing both emotionally and physically. While crisis response meetings are important and necessary, you cannot work yourself or your team into the ground. Make time for self-care — both mentally and physically. The strain on mental health care systems globally is already starting to show. It’s the first mile of a long path, so make sure you and your team have the support you all need.
● Empower your team to act decisively. At a time like this, you need to provide direction but empower your team to make independent decisions because no one understands the ground realities better than them. Listen to them, and if they trust you, you’ll know what’s coming much faster than through any board meeting. Delegate, because if you try to control everything, you won’t move fast enough.
● Show them you’re human. Remote work is hard and it impacts motivation, engagement, and even stress. Show the team your human side, whether it’s a Zoom call with the kids in the background or booking virtual drinks for 30 minutes to share something personal and non-work-related. Take your culture online, show the team you care, and they will remember this when things improve.
Executing your Vision
If your vision has strong first principles, it will continue to hold true throughout the COVID-19 crisis. Your product can evolve, the team may change, the market can take a hit, but the solution you’re creating will survive because you are solving a problem worth solving. To keep your vision in motion:
● Diversify. Don’t be reliant on one customer, one territory, one product, or one supplier. Start building for a future where certain sectors or producers might be disrupted, giving yourself the ability to absorb unforeseen shocks and weather fluctuations in demand and supply that will play out in the next 18 months.
● Become essential. When wallets are thin, will customers want to keep spending on you? Products and services that solve a real pain point will survive better than the nice-to-have offerings that become non-essential in tough times. One of the best examples of this was Airbnb, that positioned itself as an alternative revenue source for people losing their jobs during the 2008 financial crisis.
● Make the “Rockstar” hires. You’ve had your eye on hiring an amazing sales leader or COO, but in a competitive hiring market, the top candidate might have been priced out of your search. Given current volatility and the flux we’re seeing in talent retention, this might be the perfect time to be opportunistic and fill that role. If your vision is compelling enough, the right candidate for your team and culture might be within reach sooner than you’d planned.
● Build new bridges. This is a time where new partners may be looking for you, so position yourself to be noticed. Governments need you to succeed, experts are offering their time, so be open to conversations that can help you accelerate. Use this opportunity to speak with, and learn from, the best. It’s a wonderful time to cultivate new relationships and partnerships that might not have otherwise existed.
“New partners may be looking for you, so position yourself to be noticed.”
Being a start-up CEO is challenging at the best of times. But this new COVID-19 reality presents a huge opportunity to learn and grow. While you need to secure your cash position, the best leaders are focused on being better leaders and thinking through how their business becomes a key player in a COVID shaped future.
You’ve had 100 days to acknowledge the change, now embrace the new normal, and start making your plan to emerge on the other side.
Let’s get to work!